Charities back FSA plans to tackle reckless lending

Banks and building societies must not be allowed to return to the irresponsible lending practices of the past that caused misery for thousands of homeowners, two charities have said.

Citizens Advice and Shelter said they supported the Financial Services Authority's proposals to introduce tough income and affordability checks on mortgage borrowers.

The planned new rules have caused controversy, with the Council of Mortgage Lenders warning that the regime would have an impact on 45 per cent of people who took out a mortgage this year.

One voice: Charities say failing to banish reckless lending would be a
'mistake'

But in a letter to housing minister Grant Shapps, the two charities
said failing to permanently stamp out reckless lending would be a
'missed opportunity' and a potentially 'costly mistake'.

The groups added that it was vital the Government did not allow a
return to the soft-touch regulation of the past, which devastated the
housing market and put thousands of homeowners on the brink of
homelessness.

Gillian Guy, chief executive of Citizens Advice, said: 'Bureaux saw
115,000 problems last year relating to mortgage and secured loan
arrears and see countless ongoing problems resulting from vulnerable
borrowers given mortgages they could never have afforded to pay from
the outset or once the discounted periods ended.

'These proposals are about the FSA ensuring that mortgage lenders
and borrowers take proper care to consider whether a mortgage is
affordable and sustainable over time before entering into it.'

The group said among the cases of irresponsible lending it had come
across was a man from Somerset who was facing having his home
repossessed.

He had taken out a mortgage with a sub-prime lender a year earlier,
but his monthly repayments were £981, despite the fact that he and his
wife had an income of just £987 a month.

Kay Boycott, director of campaigns, policy and communications at
Shelter, said: 'From our research we know that millions of people are
already struggling with their mortgage payments and every two minutes
someone faces the prospect of losing their home.

'We urge the Government to support the FSA's proposals to ensure we prevent even more people from living on a knife-edge.'